Pre-Market Update for 10/23/2017

Small-Caps Still Slacking

8:00am (EST)

The bulls continued their run into blue-sky territory as the Dow and S&P 500 closed at fresh all-time highs on Friday for their 6th-straight week of gains. The Nasdaq also set a record peak and is on a 4-week winning streak. Meanwhile, the Russell 2000 rebounded to end the week in positive territory but fell shy of a lifetime high by 2 points.

The Dow jumped 165 points, or 0.7%, to close at 23,328. The blue-chips held positive territory throughout the session after opening at 23,205 and closing on another record high. I mentioned a move above 23,250 could lead to a continued rally towards 23,500-23,550. Rising support is at 23,200-23,100 with backup help at 23,000-22,800.

The S&P 500 surged 13 points, or 0.5%, to settle at 2,575. The index opened at 2,367 and between resistance at 2,560-2,575 while also going out at its session peak. Continued closes above the latter keeps fresh fluff up to 2,600-2,625 in play. Rising support is at 2,560-2,550 with a move below 2,540 signaling a short-term top.

The Nasdaq gained 24 points, or 0.4%, to finish at 6,629. Tech opened at 6,633 and traded to an intraday high of 6,640. Upper resistance at 6,625-6,650 held with a move above the latter likely leading to a run at 6,700-6,725. Support remains at 6,600-6,575 with a close below 6,550 being a bearish development.

The Russell 2000 added 7 points, or 0.5%, to end at 1,509. The small-caps tested a high of 1,512 shortly after the open but failed its all-time high just south of 1,515. Resistance remains at 1,515-1,525 with a move above the latter being a bullish development for a push towards 1,540-1,550. Support is at 1,500-1,490 with a move below the latter likely leading to a quick backtest to 1,475-1,470.

The S&P 500 Volatility Index ($VIX, 9.97, down 0.08) traded in the red throughout Friday with the low reaching 9.29 during the opening action. Support at 9.75-9.50 held with the 52-week low at 8.84. Resistance is at 10.50-11.50 with last Thursday’s high reaching 11.77. A move above 12.50 on the VIX would be a signal to lighten up on bullish positions.

The Financials led Friday’s sector leaders after rising 1.2%, and 1.4% for the week. Consumer Staples were down 0.2% with the sector falling 0.8% for the week, along with Energy.

The Financial Select Sector Spiders (XLF) surged to a 10-year high of $26.66 with decade-long resistance at $26.50-$26.75 holding. Continued closes above the latter could lead to a continued rally towards $28-$30. Current support is at $26.50-$26.25 with a move $26 signaling a short-term top. RSI is above 70 and is pushing late September and early October highs. Overbought conditions reached 80-85 last November/ December.

3Q earnings season has gotten off to a good start with over a tenth of the S&P 500 companies reporting thus far. Total earnings for the S&P 500 members that have reported already are up 13.3% from the same period last year on 6.9% higher revenues. Companies topping EPS estimates are near 77% with 73% beating revenue estimates.

Total Q3 earnings for the S&P 500 index are expected to be up 3% from the same period last year on 4.9% higher revenues. Q3 growth is on track to be the lowest this year, following double-digit growth in each of the first two quarters of the year, and earnings growth in the last quarter of the year currently expected at 9.1%.

Earnings growth is expected to turn positive in Q3 for the small-cap S&P 600 index, with total earnings for the index expected to be up 8.3% from the same period last year on 5.2% higher revenues. This would follow persistent earnings declines for the S&P 600 as earnings growth has been negative in 3 of the last 4 quarters.

For full-year 2017, total earnings for the S&P 500 index are expected to be up 7.1% on 4.6% higher revenues, which would follow 0.7% earnings growth on 2.2% higher revenues in 2016. S&P 500 index earnings are expected to be up 11.8% in 2018 and 9.2% in 2019.

The Spiders Dow Jones Industrial Average ETF (DIA) tapped a lifetime high of $233.13 on Friday with fresh resistance now at $233.50-$235. I mentioned continued closes above $227.50 could lead to a run towards $230 which cleared mid-week. This level will try to serve as support on a pullback. RSI remains at overbought levels near 90 following the breakout above the late July and early August highs.

The VelocityShares Daily Inverse VIX (ZIV) traded to the upside throughout the session while peaking at 81.07 and another all-time high. Near-term resistance at 82-83.50 remains in play on continued closes above 80. Shaky support is at 79-78.50 with a close below 78 being a slightly bearish development. ZIV works opposite the VIX and usually rises when the market is up.

I wanted to cover DIA and ZIV to show current overbought conditions. The continued failure of the small-caps to crack fresh all-time highs is also a slight concern. We can continue to ride the momentum but I will be watching the VIX and ZIV for early warning signs a market top is near.


Momentum Options Play List

Closed Momentum Options Trades for 2017: 50-20 (71%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records.

Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the ‪8am‬ and ‪12pm–2pm (EST)‬ updates. Also, I will usually give you a heads-up if I think I’m going to send a Trade Alert outside of these time frames.


Ford (F, $12.10, up $0.02)

November 12 calls (F171117C00012000, $0.35, flat)

Entry Price: $0.45 (10/11/2017)
Exit Target: $0.90
Return: -27%
Stop Target: None

Action: Resistance is at $12.20-$12.25 with Friday’s high reaching $12.14. Support is at $12.10-$12.


Limelight Networks (LLNW, $4.96, up $0.25)

LLNW ‪December 4‬ calls (LLNW171215C00004000, $1.05, up $0.20)

Entry Price: $0.37 (9/21/2017)
Exit Target: $1.20 (Limit Order on half at $1.20)
Return: 165%
Stop Target: 50 cents (Stop Limit)

Action: Upper resistance at $4.75-$5 was cleared on the run to $5.09. Continued closes above the latter could lead to a run towards $5.25-$6. Rising support is at $4.75-$4.70.


TherapeuticsMD (TXMD, $5.10, up $0.25)

TXMD December 7.50 calls (TXMD171215C00007500, $0.25, up $0.05)

Entry Price: $0.95 (8/17/2017)
Exit Target: $1.90
Return: -72%
Stop Target: None

Action: Resistance is at $5.25. Rising support is at $5-$4.90 followed by $4.75-$4.70.